Rupee hit all-time low as RBI governor change sparks rate cut hopes

The Indian rupee weakened to its all-time low on Tuesday as traders reacted to the appointment of career bureaucrat Sanjay Malhotra as the next Reserve Bank of India (RBI) governor by ramping up bets on rate cuts by the central bank next year.

The rupee hit a low of 84.8575 against the US dollar before closing at 84.8525, down 0.1% on the day.

Government bond yields dipped, while the 5-year overnight index swap, a gauge of interest rate expectations, declined to a 3-month low of 5.97% before paring losses.

Dollar sales by state-run banks, most likely on behalf of the RBI, helped limit the rupee's losses, traders said.

Das' exit, economists said, may add a dovish tilt to the RBI's monetary policy committee as Das and Deputy Governor Michael Patra were seen as the most hawkish among the six-member rate-setting panel. Patra's term concludes in mid-January.

"Between now and the next rate meeting in February, the new Governor's views on liquidity, currency management and macro-prudential measures will be watched closely," DBS Bank said in a note.

Malhotra will start his three-year term as RBI governor from Wednesday and relinquish his current post as the revenue secretary to the country's finance ministry.

The change comes at a time of heightened global uncertainty, especially on international trade and tariffs.

That has weighed on most emerging market currencies, including the rupee, which has declined about 0.9% since Donald Trump won the US presidential election in early November.

Meanwhile, the dollar index rose 0.1% to 106.3 on Tuesday while most Asian currencies dipped as traders awaited US inflation data on Wednesday for further clues on the pace of Federal Reserve easing.

Investors have priced in a near 90% chance of a 25 basis point Fed rate cut at next week's meeting.